Goldman believes that the Fed could begin rate cuts from the first quarter of next year as inflation hopefully falls.
Financial services giant Goldman Sachs Group Inc (NYSE: GS) has revised its call for Fed interest rate cuts for 2024. According to a report, the banking and investment management company has added a possible rate cut in Q1 2024 to its forecast, adding that the Fed could cut rates in March, May, and June next year.
Goldman Sachs Forecasts Rate Cuts
Goldman previously forecasted that the Fed would begin rate cuts in December. The bank later revised this prediction, bringing the cuts forward to some time in the third quarter of next year. The revision came about based on several factors, including the reduced price of fuel in the US despite inflation. In a recent note, Goldman economist Jan Hatzius said “better inflation news does suggest that normalization cuts could come a bit earlier.”
Goldman revised its rate target to 4.875% by the end of next year, lower than the 5.13% initially predicted. However, the Federal Open Market Committee (FOMC) will likely remain cautious in its own forecast because it will consider existing data before making any decisions. In addition, there is the risk that a favorable forecast from the FOMC would cause the markets to prematurely price in the rate cut.
Another hike in interest rates might be unlikely. At a recent press conference, Fed Chair Jerome Powell said the rate is “at or near its peak,” adding that “it’s not likely we will hike again.” However, Powell said it is possible.
According to him, the Fed “didn’t want to take the possibility of additional hikes off the table.” He said this despite admitting that the economy’s strength has surprised officials. Unfortunately, the Fed believes “it is far too early to declare victory,” adding that risks abound. Nonetheless, Pantheon Macroeconomics Chief Economist Ian Shepherdson said the Fed will cut rates quickly because “inflation will fall faster than they expect.”
Bitcoin and the Interest Rate
Observers and investors are watching closely for any official pointer’ to the FOMC’s sentiment on rate cuts next year. Regardless of the Fed’s decision, the situation would likely be reflected in the price of Bitcoin (BTC). Generally, risk assets tend to perform positively when interest rates are low or reduced. However, this is not a guaranteed situation, especially since Bitcoin is volatile and is known sometimes to defy conventional forecasts.
Nonetheless, 2024 may be a positive year for Bitcoin for several reasons. Firstly, Bitcoin and much of the crypto market recently began a rally that has pushed the world’s largest cryptocurrency more than 158% in year-to-date (YTD) gains. In addition, the possibility of the United States Securities and Exchange Commission (SEC) approving a spot Bitcoin ETF. There also is the halving event expected sometime in April next year. Now, the possibility of rate cuts could add to the bullish sentiment in the Bitcoin market and pump its price. It could also put more purchasing power in the hands of investors, influencing them to spend more on acquiring Bitcoin.